Sonoma County Ass'n of Retired Employees v. Sonoma County

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
SONOMA COUNTY ASSOCIATION OF No. 10-17873
RETIRED EMPLOYEES,
Plaintiff-Appellant, D.C. No.
4:09-cv-04432-
v. CW
SONOMA COUNTY ,
Defendant-Appellee. OPINION
Appeal from the United States District Court
for the Northern District of California
Claudia A. Wilken, Chief District Judge, Presiding
Argued and Submitted
June 13, 2012—San Francisco, California
Filed February 25, 2013
Before: Proctor Hug, Jr., Johnnie B. Rawlinson,
and Sandra S. Ikuta, Circuit Judges.
Opinion by Judge Ikuta;
Partial Concurrence and Partial Dissent by Judge
Rawlinson
2 S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY .
SUMMARY*
Civil Rights/ Health Care
The panel vacated the district court’s dismissal of a
complaint brought by the Sonoma County Association of
Retired Employees alleging that the County of Sonoma had
breached its obligation to provide certain vested healthcare
benefits in perpetuity.
The Association alleged that although the County had not
expressly promised to provide these benefits, it had implicitly
done so. The panel held that in light of the California
Supreme Court’s recent decision in Retired Employees Ass’n
of Orange County, Inc. v. County of Orange (REAOC II), 266
P.3d 287, 289 (Cal. 2011), which recognized that a county
may form a contract with implied terms under specified
circumstances, the district court erred in dismissing the
Association’s complaint with prejudice. The panel held that
although the Association’s amended complaint failed to
plausibly allege the County created an implied contract by
ordinance or resolution, the district court erred by denying the
Association leave to amend on the ground that such
amendment would be futile. The panel remanded to the
district court for proceedings consistent with REAOC II.
Concurring in part and dissenting in part, Judge
Rawlinson agreed with the majority that the district court
properly dismissed the complaint for failure to state a claim.
*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY . 3
She disagreed with the majority’s conclusion that the district
court abused its discretion in denying further leave to amend.
COUNSEL
Jeffrey Lewis, Lewis, Feinberg, Lee, Renaker & Jackson,
P.C., Oakland, California, for Plaintiff-Appellant.
Raymond F. Lynch, Hanson Bridgett LLP, San Francisco,
California, for Defendant-Appellee.
OPINION
IKUTA, Circuit Judge:
The Sonoma County Association of Retired Employees
(Association) sued Sonoma County, alleging that the County
had breached its obligation to provide certain vested
healthcare benefits in perpetuity. Although the County had
not expressly promised to provide these benefits, the
Association alleged that it had implicitly done so. The
California Supreme Court’s recent decision in Retired
Employees Ass’n of Orange County, Inc. v. County of Orange
(REAOC II) recognized that a county may form a contract
with implied terms under specified circumstances. 266 P.3d
287, 289 (Cal. 2011). In light of REAOC II, the district court
erred in dismissing the Association’s complaint with
prejudice.
4 S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY .
I
This case arises from the County’s efforts to reduce its
liability for its retired employees’ healthcare benefits, which
it has subsidized since at least 1964. In 2007, the County
became concerned about the rapidly rising costs of healthcare
benefits, which had doubled since 2002. In August 2008, the
County’s Board of Supervisors enacted a resolution to limit
the County’s healthcare benefit contributions to $500 per
month for retirees, with a five-year phase-in period. The
Association, representing retired County employees, filed suit
against the County in 2009 on the ground that the County’s
August 2008 resolution amounted to a breach of both express
and implied contracts, and raised numerous other claims
including breach of the covenant of good faith and fair
dealing, violations of the Contract Clauses of the California
and United States Constitutions, promissory estoppel, and
violation of due process.
The Association’s original complaint alleged that, in
connection with providing healthcare benefits for retirees
over the course of many decades, the County made two
different promises to the retirees. First, beginning in at least
1964, the County promised to pay “all or substantially all” of
the costs of post-retirement healthcare benefits for its retirees
and their dependents. Second, in 1985, the County entered
into a “tie agreement,” which promised that the County would
treat retirees and their dependents the same as it treated the
active management employees with respect to healthcare
benefits and the County’s payment of costs. The complaint
alleged that these promises, and the employees’ performance
of services in exchange for these promises, created a legally
binding contract. The Association further alleged that the
County intended these promises to create healthcare benefits
S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY . 5
that would continue during the lives of the retirees and their
dependents.
In its May 14, 2010 order, the district court dismissed the
Association’s complaint with leave to amend. The district
court explained that as a matter of California law, oral
promises and other extrinsic evidence standing alone could
not contractually bind the County in the context of public
employment. Accordingly, the district court rejected the
Association’s claim that the County’s “set of promises over
the years . . . in writing, orally, and as applied through
practice” created an implied contract. Because the
Association had not identified resolutions or ordinances that
created an express contract for healthcare benefits, the district
court held that the Association’s good faith and fair dealing
claim, Contract Clauses claims, and due process claims also
failed. Finally, the district court rejected the complaint’s
promissory estoppel claim on the ground that the Association
could not have reasonably relied on the County’s implied
promises.
While this case was pending, another Ninth Circuit panel
considered a case raising similar issues. See Retired Emps.
Ass’n of Orange Cnty. Inc. v. Cnty. of Orange, 610 F.3d 1099(9th Cir. 2010) (REAOC I). In that case, a group of retired
county employees sued the county for changing its long-
standing practice of subsidizing retiree healthcare benefits on
the ground that the county’s long-standing practice created an
implied contract. The district court in that case granted
summary judgment in favor of the county, because the county
“cannot be liable for any obligation that it did not enter
through explicit Board resolution.” Id. at 1101–02. Because
the question whether the retired employees and the county
had entered into an enforceable contract was a question of
6 S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY .
state law, the REAOC I panel certified the following question
to the California Supreme Court: “Whether, as a matter of
California law, a California county and its employees can
form an implied contract that confers vested rights to health
benefits on retired county employees.” Id. at 1101.
While the certified question from REAOC I was pending
before the California Supreme Court, the Association filed an
amended complaint in this case, asserting the same causes of
action as in the original complaint, but adding more facts and
attaching copies of the sixty-eight resolutions, memoranda of
understanding (MOUs), and ordinances on which it relied.
The Association also stated it would provide evidence of the
County’s intent to provide vested healthcare benefits through
testimony of the employees who drafted the County’s
resolutions and policies, and through a member of the Board
of Supervisors, who would testify as to the Board’s promises
and intent to provide benefits.
On November 23, 2010, the district court granted the
County’s motion to dismiss the Association’s amended
complaint, this time without leave to amend. The court noted
that none of the documents adduced by the Association in
connection with its complaint contained the County’s express
agreement to provide healthcare benefits to retirees in
perpetuity, which the court had previously held was necessary
to form a binding contract between the County and retirees in
this context. Given the Association’s failure on this second
try to provide any evidence of an express agreement, the
district court denied the Association leave to amend. In a
footnote, the court acknowledged the certified question in
REAOC I was pending before the California Supreme Court,
but did not consider it because both parties had indicated that
the certified issue was not relevant.
S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY . 7
The Association appealed both the November 2010 order
and the May 2010 order, which became final and appealable
when the district court dismissed the case without leave to
amend. See Montes v. United States, 37 F.3d 1347, 1351 (9th
Cir. 1994).
II
While this appeal was pending, the California Supreme
Court issued an opinion responding to the certified question
posed by the Ninth Circuit in REAOC I. In REAOC II, the
court considered three different issues: (1) whether a county
government and its employees can form an implied contract
for compensation; (2) if such contracts are cognizable,
whether implied contracts can create irrevocable or “vested”
rights; and (3) if vested contractual rights for county
employees can be implied, whether such rights can include
healthcare benefits. See REAOC II, 266 P.3d at 291.
Turning to the first question, the court held that “a county
may be bound by an implied contract (or by implied terms of
a written contract), as long as there is no statutory prohibition
against such an agreement.” Id. at 294. The court decided
that it need not determine whether the county “may form an
implied contract with its employees on matters of
compensation” because the retirees took the position that they
had an express contract and were “seeking recognition only
of an implied term.” Id. at 295 (first emphasis added).
According to the court, implied terms “stand on equal footing
with express terms,” so long as they do not conflict with the
express terms. Id. at 290 (internal quotation marks omitted).
The court then considered the extent to which section
25300 of the California Government Code, which authorizes
8 S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY .
a public entity to enter into a compensation contract only by
ordinance or resolution, constituted a “statutory prohibition”
against implied agreements or implied terms in the public
employment context.1 See id. at 294. According to the court,
section 25300 did not completely prohibit implied agreements
or terms, because “contractual rights can be implied from
legislative enactments under limited circumstances.” Id. at
295. The court explained that an ordinance or resolution can
create a contract when the legislation’s text or the
“circumstances accompanying its passage” clearly evince an
intent to contract, as opposed to an intent to make policy. Id.
at 296. Although the public entity’s intent to create a contract
must be clear, the intent need not be express. Id. The
California Supreme Court gave some examples of when
legislation may create a contract. For example, if “the
legislation is itself the ratification or approval of a contract,
the intent to make a contract is clearly shown.” Id.
Alternatively, legislation creates a contract if it “contains an
unambiguous element of exchange of consideration by a
private party for consideration offered by the state.” Id.
(citing Cal. Teachers Ass’n v. Cory, 155 Cal. App. 3d 494,
505 (Cal. Ct. App. 1984)).
Having concluded that a court can infer contractual rights
from legislation when the legislature’s intent is clear, the
court then considered whether it was “impermissible to infer
vested contractual rights.” Id. at 297. The court determined
1
Cal. Gov’t Code § 25300 states, in pertinent part: “The board of
supervisors shall prescribe the compensation of all county officers and
shall provide for the number, compensation, tenure, appointment and
conditions of employment of county employees. Except as otherwise
required by Section 1 or 4 of Article XI of the California Constitution,
such action may be taken by resolution of the board of supervisors as well
as by ordinance.”
S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY . 9
that this too was a matter of the parties’ intent. Id. at 298.
“[A]s with any contractual obligation that would bind one
party for a period extending far beyond the term of the
contract of employment, implied rights to vested benefits
should not be inferred without a clear basis in the contract or
convincing extrinsic evidence.” Id. at 299. Therefore,
plaintiffs have a particularly “heavy burden” to demonstrate
“the legislative body’s intent to create vested rights.” Id. at
298 (internal quotation marks omitted).
Finally, the court considered the County’s arguments that
various other statutes prohibited public entities from
including implied terms relating to healthcare benefits in
employment contracts. The court rejected each of these
arguments based on a close reading of the specific terms of
the statute. See id. at 299–301.
The California Supreme Court concluded that “under
California law, a vested right to health benefits for retired
county employees can be implied under certain circumstances
from a county ordinance or resolution.” Id. at 301. However,
the court declined to reach the merits of the case, stating that
“[w]hether those circumstances exist in this case is beyond
the scope of the question posed to us by the Ninth Circuit.”
Id.
III
We now consider the Association’s appeal from the
dismissal of its complaint in light of the guidance provided by
REAOC II.2 “We review de novo the dismissal of a
complaint for failure to state a claim.” Telesaurus VPC, LLC
2
The parties have provided us with supplemental briefing on this issue.
10 SONOMA C NTY . A SS’N OF R ETIRED E MP. V. SONOMA C NTY .
v. Power, 623 F.3d 998, 1003 (9th Cir. 2010). While a
complaint does not require “detailed factual allegations,” it
“must contain sufficient factual matter, accepted as true, to
state a claim to relief that is plausible on its face.” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks
omitted). The plausibility standard “is not akin to a
‘probability requirement,’ but it asks for more than a sheer
possibility that a defendant” is liable. Id. “A claim has facial
plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id.A
Here, in order to survive a motion to dismiss, the
Association’s complaint must plausibly allege that the
County: (1) entered into a contract that included implied
terms providing healthcare benefits to retirees that vested for
perpetuity; and (2) created that contract by ordinance or
resolution. See REAOC II, 266 P.3d at 289.
The Association met the first requirement by plausibly
alleging that: (1) the County entered into a contract; (2) the
contract provided healthcare benefits to retirees; and (3) the
contract included an implied term that the benefits were
vested for perpetuity. First, the complaint alleges that the
County “conveyed its promises and intent to continuously and
consistently provide vested retiree health benefits” in “Board-
ratified Memoranda of Understanding,” among other
documents. There is no doubt that the MOUs are contracts.
As the California Supreme Court previously explained, “all
modern California decisions treat labor-management
agreements whether in public employment or private as
enforceable contracts which should be interpreted to execute
S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY . 11
the mutual intent and purpose of the parties.” Glendale City
Emps. Ass’n v. City of Glendale, 540 P.2d 609, 616 (Cal.
1975); see also REAOC II, 266 P.3d at 293 (Where a county
“negotiate[s] and approve[s] MOUs with its employee
bargaining units . . . such agreements are binding and
constitutionally protected.” (internal quotation marks
omitted)).
The MOUs submitted with the amended complaint
support the Association’s allegation that the MOUs promised
healthcare benefits. Specifically, the documents state, among
other things, that the County will make contributions toward
a health plan premium for retirees hired after 1990 who have
worked for the County for at least ten years, and have
contributed to the County’s retirement system for the same
length of time.3
The Association’s amended complaint also plausibly
alleges that the County intended these healthcare benefits to
vest for perpetuity. The complaint states that the County
conveyed this intent “in writing, orally, by implication, and
through practice.” The Association supported this allegation
with factual matter, including: (1) MOUs, resolutions, and
other documents establishing the County’s long-standing
course of conduct; (2) allegations that former employees who
drafted these documents would testify in support of the
Association’s position regarding the “background, purpose,
and intent” of the documents; and (3) statements that at least
3
A provision in a typical M OU states: “Upon meeting [the conditions
that the employee work and contribute for ten years] the County shall
contribute for the retiree only the same amount towards a health plan
premium as it contributes to an active single employee in the same manner
and on the same basis as is done at the time for other retirees who were
hired or rehired before July 1, 1990.”
12 SONOMA C NTY . A SS’N OF R ETIRED E MP. V. SONOMA C NTY .
one former Board member would testify as to the County’s
intent that the benefits vest in perpetuity.4
Taken as a whole, the amended complaint includes factual
content that is non-conclusory, more than “merely consistent”
with the County’s liability, and substantial enough to allow a
court, accepting the allegations as true, to make a reasonable
inference that the County implicitly bound itself to provide
healthcare benefits to its retirees in perpetuity. See Iqbal,
556 U.S. at 678 (internal quotation marks omitted).
But this is not enough to survive a motion to dismiss: the
complaint must also plausibly point to a resolution or
ordinance that created the contract implying these benefits.
See REAOC II, 266 P.3d at 294. Specifically, the County’s
resolutions and ordinances may create a contract if the text
and the circumstances of their passage “clearly evince” an
intent to grant vested benefits, id. at 296 (internal quotation
marks omitted), or if they “contain[ ] an unambiguous
4
The dissent’s argument that the Association cannot rely on testimony
from County Board members and administrators because such testimony
is not a “cognizable substitute” for proof that a contract was created by “a
resolution or ordinance formally enacted by a majority of the Board of
Supervisors,” dis. op. at 22 (quoting Harris v. Cnty. of Orange, 682 F.3d
1126, 1134 (9th Cir. 2012) (emphasis omitted)) conflates two different
issues. Although REAOC II reiterated that the compensation of public
employees must be addressed by resolution or ordinance, see 266 P.3d at
294 (citing Cal. Gov’t Code § 25300), in those circumstances where the
County intended to create a contractual obligation by resolution or
ordinance, such a contract may include implied terms that can be inferred
from “[e]vidence derived from experience and practice.” Id. at 290
(internal quotation marks omitted). Thus, if the Association plausibly
alleges that the County created a contract by means of a formally enacted
resolution which ratified an MOU, for instance, then the Association may
introduce evidence of that contract’s implied terms, including testimony
regarding the County’s intent.
S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY . 13
element of exchange of consideration by a private party for
consideration offered by the state.” Id. In the alternative, the
County’s intent to make a contract by legislation “is clearly
shown” when a resolution or ordinance ratifies or approves
the contract. Id.
But here the amended complaint does not plausibly allege
either alternative. The Association does not make allegations
sufficient to establish that the resolutions, ordinances, and
MOUs were the product of a bargained-for exchange of
consideration. The complaint’s statement that the retirees
performed services as employees in exchange for the
County’s promise to confer vested healthcare benefits upon
them is the sort of legal conclusion unsupported by factual
matter that the Supreme Court rejected as inadequate in Iqbal.
See 556 U.S. at 678. Moreover, while the complaint alleged
that the MOUs were “Board-ratified,” it did not allege that
the Board ratified the MOUs by resolution or ordinance; nor
did the Association submit copies of any such resolutions or
ordinances with the amended complaint.5 Given REAOC II’s
focus on the statutory requirement that compensation of
county employees must be addressed in an ordinance or
resolution, see 266 P.3d. at 295 (citing Cal. Gov’t Code
§ 25300), the complaint’s passing references to Board
ratification are an insufficient basis for a court to infer that
the County enacted a resolution or ordinance that ratified the
relevant MOUs. Accordingly, the district court did not err in
5
W hile Board ratification may be equivalent to a Board resolution, see
Dimon v. Cnty. of Los Angeles, 83 Cal. Rptr. 3d 576, 583–84 (Cal. Ct.
App. 2008) (holding that a resolution “is the mere expression of the
opinion of the legislative body concerning some administrative matter for
the disposition of which it provides,” and thus a board’s oral approval of
an MOU was “in effect, done by resolution”), the Association has not
made this argument, and therefore we do not reach it here.
14 SONOMA C NTY . A SS’N OF R ETIRED E MP. V. SONOMA C NTY .
concluding that the amended complaint failed to state a cause
of action on this issue.
Nevertheless, in light of REAOC II, we cannot agree with
the district court’s decision to deny the Association leave to
amend on the ground that such amendment would be futile.
In general, a court should liberally allow a party to amend its
pleading. See Fed. R. Civ. P. 15(a); see also Owens v. Kaiser
Found. Health Plan, Inc., 244 F.3d 708, 712 (9th Cir. 2001)
(“A district court shall grant leave to amend freely when
justice so requires,” and “this policy is to be applied with
extreme liberality.”)(internal quotation marks and citations
omitted). Courts may decline to grant leave to amend only if
there is strong evidence of “undue delay, bad faith or dilatory
motive on the part of the movant, repeated failure to cure
deficiencies by amendments previously allowed, undue
prejudice to the opposing party by virtue of allowance of the
amendment, [or] futility of amendment, etc.” Foman v.
Davis, 371 U.S. 178, 182 (1962). “[T]he consideration of
prejudice to the opposing party carries the greatest weight.”
Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052
(9th Cir. 2003).
These considerations weigh in favor of granting leave to
amend here. We may grant leave to amend in situations
where the controlling precedents changed midway through
the litigation. See, e.g., Moss v. United States Secret Service,
572 F.3d 962, 972 (9th Cir. 2009) (granting plaintiffs leave to
amend their complaint in light of Bell Atlantic Corp. v.
Twombly, 550 U.S. 544 (2007), which was decided after the
plaintiffs brought suit). As a general rule, “[d]ismissal
without leave to amend is improper unless it is clear, upon de
novo review, that the complaint could not be saved by any
amendment.” Polich v. Burlington Northern, Inc., 942 F.2d
S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY . 15
1467, 1472 (9th Cir. 1991). In light of REAOC II, the
Association may be able to amend its complaint to state a
claim that will survive a motion to dismiss, and so denial of
leave to amend on the ground of futility is improper.6
Nor do any of the other Foman factors weigh against
granting leave to amend. Although this litigation has been
ongoing for several years, “[t]he mere fact that an amendment
is offered late in the case . . . is not enough to bar it.” United
States v. Webb, 655 F.2d 977, 980 (9th Cir. 1981) (quoting
3 Moore’s Federal Practice § 15.08(4) at 15-102). The
County would not be prejudiced, because it should be “fully
prepared to litigate the substantive issues” of the claim, given
that both the theory and the operative facts of the claim
remain the same. Hurn v. Ret. Fund Trust of Plumbing,
Heating & Piping Indus. of S. Cal., 648 F.2d 1252, 1254 (9th
Cir. 1981). Moreover, there is no evidence or allegation of
“undue delay, bad faith or dilatory motive” over the course of
these proceedings. Foman, 371 U.S. at 182. Accordingly, we
conclude that the Association should be given a second
chance to amend its complaint in light of REAOC II.
6
The dissent’s argument that amendment would be futile because the
Association already had an opportunity to amend and failed to properly
allege a contract for healthcare benefits, see dis. op. at 23, does not
account for REAOC II’s significant clarification of the circumstances
when a public employee may enforce implied terms in an express contract
for healthcare benefits. Indeed, our ruling today mirrors our ruling in
Harris, where we remanded the retirees’ claims that certain healthcare
benefits were an implied term of the county’s MOUs so that the district
court could assess those claims in light of REAOC II. See 682 F.3d at
1130, 1134.
16 SONOMA C NTY . A SS’N OF R ETIRED E MP. V. SONOMA C NTY .
B
The County raises two additional arguments which merit
some discussion. First, the County argues that the Association
waived its argument about the existence of implied terms
because it informed the district court that the certified
question in REAOC II was not relevant to this case, and did
not raise this argument to the district court after filing its
amended complaint. We disagree. As the Association
correctly points out, our certified question to the California
Supreme Court asked only whether employees could form an
implied contract for healthcare benefits. See REAOC I,
610 F.3d at 1101. Based on this question, the Association
could reasonably conclude that REAOC II would not address
implied terms of express contracts, and therefore the opinion
would not be relevant to the district court’s determination.
The Association’s erroneous prediction does not preclude
review here, given that the Association’s complaint preserved
its claim that the County entered into contracts with implied
terms. Cf. Sovak v. Chugai Pharm. Co., 280 F.3d 1266, 1270
(9th Cir. 2002) (no invited error where party cited the wrong
law as controlling but otherwise discussed applicable law);
Portland Gen. Elec. Co. v. U.S. Bank Trust Nat’l Ass’n as Tr.
for Trust No. 1, 218 F.3d 1085, 1089 (9th Cir. 2000) (finding
that a question of law was preserved where parties had fully
briefed the issue to the court, even though one party made an
error of legal interpretation).
Further, the Association did not waive its argument
regarding implied contract terms by failing to raise it again to
the district court during the November 23, 2010 proceedings.
The district court had rejected the Association’s implied
contract theory in its May 2010 ruling dismissing the original
complaint. The Association’s appeal of the May 2010 order
S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY . 17
is presently before this court, and the Association’s failure to
raise the same argument a second time does not constitute a
waiver. See Montes, 37 F.3d at 1351 (appellant could
challenge first judgment on appeal following second and final
judgment).
Second, the County argues that our recent decision in
Harris v. County of Orange compels us to conclude that
notwithstanding REAOC II, a plaintiff cannot claim vested
benefits unless it can prove the existence of a contract with
express terms. See 682 F.3d 1126, 1135 (9th Cir. 2012). The
County is mistaken. The retirees in Harris asserted two
claims, one based on an implied promise to subsidize health
insurance premiums for its retired employees via a pooling
arrangement, and the other based on the county’s express
promise in collective bargaining agreements to provide a
monthly grant toward the cost of health insurance. See id. at
1129. Consistent with REAOC II, Harris remanded the
claims based on the implied promise to the district court so
that it could “assess those claims in light of the California
Supreme Court’s opinion, and coordinate those claims with
the REAOC litigation.” Id. at 1134. And, because the retirees
had not brought all the relevant express terms before the
court, Harris dismissed those claims with leave to amend. Id.
Harris did not purport to rule on a theory premised on
implied terms or to interpret or apply REAOC II in dismissing
the claims based on the express written contract; therefore, it
does not affect our analysis here.7
7
The dissent’s assertion that Harris rejected the argument raised by the
Association here is incorrect. See dis. op. at 21–22. In Harris, we
rejected the retirees’ argument that certain MOUs expressly gave retirees
a vested right to healthcare benefits in perpetuity, and noted that the
MOUs at issue established a specific end date to healthcare benefits, see
682 F.3d at 1135 & n.4 (“[O]ne MOU states: ‘This Memorandum of
18 SONOMA C NTY . A SS’N OF R ETIRED E MP. V. SONOMA C NTY .
IV
The district court did not have the benefit of REAOC II,
but in light of its clarification that a public entity in California
can be bound by an implied term in a written contract under
specified circumstances, we cannot say that the Association’s
amendment of its complaint a second time would be futile.
At a minimum, the Association may be able to plausibly
allege that the County used resolutions or ordinances to ratify
or approve MOUs that created contracts for healthcare
benefits and included implied terms vesting those benefits for
perpetuity. Accordingly, it was error to dismiss the
Association’s complaint without leave to amend.
Nevertheless, even if the Association can make
allegations that survive a motion to dismiss, REAOC II also
clarified that a plaintiff claiming the existence of a contract
with implied terms carries the heavy burden of establishing,
from statutory language or relevant circumstances, that the
public entity intended to create a compensation contract by
ordinance or resolution. It also bears the equally heavy
burden of establishing that implied terms in that contract
provide vested healthcare benefits. See 266 P.3d at 295 (“[I]t
Understanding sets forth the terms of agreement reached . . . for the period
beginning July 23, 1993 through June 23, 1994.’”). In response to the
retirees’ argument that “the durational clause in the MOUs is not an
indication of when the terms of the MOUs expire,” and therefore would
not preclude an inference that the county intended the healthcare benefits
to continue in perpetuity, we noted that even if the retirees were correct,
“the durational clause surely cannot be the source of a claim that the
benefits survive indefinitely.” Id. at 1135. Here, by contrast, the express
terms of the MOUs and resolutions at issue do not establish a specific end
date to healthcare benefits, and the Association alleges that the right to
healthcare benefits in perpetuity is an implied term of a contract, not an
express contractual right.
S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY . 19
is presumed that a statutory scheme is not intended to create
private contractual or vested rights and a person who asserts
the creation of a contract with the state has the burden of
overcoming that presumption.” (internal citations and
quotation marks omitted)). Further, a court considering such
a claim must do so cautiously, and identify “a clear basis in
the contract or convincing extrinsic evidence” establishing
that a contract exists and clearly delineating the contractual
obligation at issue. Id. at 299. We therefore remand to the
district court for proceedings consistent with REAOC II.8
VACATED AND REMANDED.
RAWLINSON, Circuit Judge, concurring in part and
dissenting in part:
I agree with the majority that the district court properly
dismissed the Complaint in this case for failure to state a
claim. However, I disagree that the district court abused its
discretion in denying further leave to amend.
Preliminarily, I do not share the majority’s view that the
Plaintiff plausibly pled a cause of action predicated on an
express contract between the employee association and
Sonoma County, or that the County impliedly agreed to
provide healthcare benefits to retirees into perpetuity. See
8
W e grant the Association’s Motion To Take Judicial notice of the
Proposed Decision of the Public Employment Relations Board decision in
SEIU, Local 1021 v. Cnty. of Sonoma, Case No. SF-CE-509-M and its
M otion To Take Judicial Notice of Legislative History. W e deny the
Association’s M otion to Remand to District Court, its Motion to Expedite,
and its Motion to Supplement the Record as moot in light of our opinion.
20 SONOMA C NTY . A SS’N OF R ETIRED E MP. V. SONOMA C NTY .
Majority Opinion, p. 7 (recognizing that the Plaintiff sought
relief predicated on the existence of an express contract); see
also Retired Employees Assn. of Orange County, Inc. v.
County of Orange (REAOC II), 266 P.3d 287, 295 (Cal. 2011)
(same).
In its opposition to Sonoma County’s Motion to Dismiss
its First Amended Complaint, Plaintiff represented to the
court that no implied contract was at issue. Likewise, in a
motion memo filed before this court following the REAOC II
decision, the Plaintiff characterized its Complaint as alleging
that Sonoma County’s promise to provide healthcare benefits
was an implied term of an express contract, not a purely
implied contract.
Plaintiff submitted three types of resolutions to support its
allegations that an express contract existed between the
employee association and Sonoma County. The first type of
submitted resolution contains “whereas” clauses generally
recognizing the existence of healthcare benefits for retirees.
The second type of submitted resolution contains “whereas”
clauses recognizing that the County is obligated to pay the
majority of its retirees’ medical insurance premiums. The
third type of submitted resolution describes the arrangement
providing for “tying” of retiree healthcare benefits to the
benefits received by active employees.
I think it important to keep in mind that under California
law, “[a] resolution by a county board does not only–or even
primarily–establish contract rights. . . .” Id. With that precept
in mind, our “judicial determination whether a particular
resolution was intended to create private contractual or vested
rights or merely to declare a policy to be pursued until the
legislative body shall ordain otherwise requires sensitivity to
S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY . 21
the elementary proposition that the principal function of a
legislature is not to make contracts, but to make laws . . .” Id.(internal quotation marks omitted). Accordingly, “it is
presumed that a statutory scheme is not intended to create
private contractual or vested rights and a person who asserts
the creation of a contract with the state has the burden of
overcoming that presumption.” Id. (citation omitted).
The whereas clauses relied upon by Plaintiff do not
plausibly overcome the presumption against the creation of a
contract through legislative action. Indeed, a recital inserted
into a document to refer to something that has already
occurred does not “create[] legal rights and obligations . . .”
Emeryville Redevelopment v. Harcros Pigments, Inc.,
101 Cal. App. 4th 1083, 1101 (2002). Rather, such recitals
“are given limited effect even as between the parties.” Id.(footnote reference omitted).
The resolutions provided by Plaintiff describe the
expenditure of funds to provide healthcare benefits for current
employees and retirees. Instead of reflecting the existence of
an express contract, the language of the resolutions “declare
a policy to be pursued until the legislative body shall ordain
otherwise . . .” REAOC II, 266 P.3d at 295.
For similar reasons, the Memoranda of Understanding
(MOUs) cannot overcome the presumption against inferring
an express contract on the part of the government to provide
healthcare benefits for retirees in perpetuity. Importantly,
Plaintiff acknowledges the lack of “explicit promises that
benefits will be paid in perpetuity.” Instead, Plaintiff relies
on the absence of durational language in the MOUs to infer
a commitment for the payment of lifetime benefits. However,
we rejected this very argument in Harris v. County of
22 SONOMA C NTY . A SS’N OF R ETIRED E MP. V. SONOMA C NTY .
Orange, 682 F.3d 1126, 1135 (9th Cir. 2012) (“[T]he
durational clause surely cannot be the source of a claim that
the benefits survive indefinitely.”). Rather, the existence of
a durational clause itself plainly negates the premise of
perpetual duration.
Finally, Plaintiff’s anticipated reliance on testimony from
County Board members and County administrators would be
futile. “Under California law, in the public employment
context, a contract with employees must be created by a
resolution or ordinance formally enacted by a majority of the
Board of Supervisors.” Id. at 1134 (citations omitted)
(emphasis added). Anecdotal evidence from county
administrators and board members is no cognizable
substitute. See 4 McQuillin Municipal Corporations § 13.1
(3d ed. 2012) (“A public corporation may only act as a body,
properly convened and functioning as such; separate
individual action of its members is ineffectual. . . .”) (footnote
reference omitted); see also Cook v. City of Addison,
656 S.W.2d 650, 657 (Tex. Ct. App. 1983) (“Statements by
individual members of a council or board are not binding on
a governmental body which may act only in its official
capacity. . . .”) (citations omitted); Minnesota Cent. R.R. Co.
v. MCI Telecomms. Corp., 595 N.W. 2d 533, 537 (Minn. Ct.
App. 1999) (“A governmental entity can only act through the
official action of its board or other governing body. . . .”)
(citation omitted).
Unlike the plaintiffs in Harris, Plaintiff has been given
the opportunity to provide–and has provided–Resolutions and
MOUs to support the allegations in its First Amended
Complaint. As the majority acknowledges, the submitted
Resolutions and MOUs do not support a plausible allegation
S ONOMA C NTY . A SS’N OF R ETIRED E MP. V . S ONOMA C NTY . 23
that the County approved healthcare benefits for retirees in
perpetuity.
Because Plaintiff has been given the opportunity to amend
its complaint and to provide the Resolutions and MOUs that
assertedly set forth the healthcare benefits in question, and
because those Resolutions and MOUs do not support a
plausible allegation to that effect as required by Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009), Plaintiff’s “complaint could
not be saved by amendment.” Harris, 682 F.3d at 1131
(citation omitted); cf. id. at 1135 (granting leave to amend the
Complaint “to set out specifically the terms of those MOUs
on which their claim is predicated”). I am of the view that the
district court acted within its discretion when it denied further
leave to amend the complaint. See Gardner v. Martino,
563 F.3d 981, 990 (9th Cir. 2009) (“A district court does not
err in denying leave to amend where the amendment would
be futile. . . .”) (citation omitted). I respectfully dissent from
the majority’s contrary conclusion.